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PROJECT REPORT
ON
ANALYSIS OF FINANCIAL STATMENT
OF
RELIANCE INDUSTRIES
PAREPARED BY: JAYA MAHAJAN
ROLL NO. :1402 01246 1

CAPITAL STRUCTURE
DEFINED:

The assets of a company can be financed either by increasing the


owners claim or the creditors claim. The owners claims increase
when the form raises funds by issuing ordinary shares or by retaining
the earnings, the creditors claims increase by borrowing .The
various means of financing represents the financial structure of an
enterprise .The financial structure of an enterprise is shown by the
left hand side. (Liabilities plus equity) of the balance sheet.
Traditionally, short-term borrowings are excluded from the list of
methods of financing the firms capital expenditure, and therefore,
the long term claims are said to form the capital structure of the
enterprise .The capital structure is used to represent the
proportionate relationship between debt and equity .Equity includes
paid-up share capital, share premium and reserves and surplus.

NEED AND IMPORTANCE OF CAPITAL


STRUCTURE:

The value of the firm depends upon its expected earnings


stream and the rate used to discount this stream. The rate
used to discount earnings stream its the firms required rate
of return or the cost of capital. Thus, the capital structure
decision can affect the value of the firm either by changing
the expected earnings of the firm, but it can affect the
reside earnings of the shareholders. The effect of leverage
on the cost of capital is not very clear. Conflicting opinions
have been expressed on this issue. In fact, this issue is one
of the most continuous areas in the theory of finance, and
perhaps more theoretical and empirical work has been done
on this subject than any other.

SCOPE OF THE STUDY:


A study of the capital structure involves an examination of long term as well as short term sources
that a company taps in order to meet its requirements of finance. The scope of the study is confined to
the sources that RELIEANCE INDUSTRIES tapped over the years under study i.e. 2013-2014.

PROBLEM STATEMENT:
Capital structure is the mixture
of the debt and equity capital
maintained and used by a firm
to finance itself. There is no
common ground among the
researcher on this subject. This
seeming common ground on
the topic is fact that no single
theory of capital structure is
able to explain the observed
capital structure decision and
performance of the firms. The
problem is how we can better
utilize the capital structure of
the company

OBJECTIVES OF THE STUDY:


1. To study of solvency of the
company from the point of view long
term, medium term, and short
term and immediate prospect.
2. To Study the capital structure of
RELIENACE INDUSTRIES Ltd through
EBIT-EPS analysis
3. Study effectiveness of financing
decision on EPS and EBIT of the firm.
4. Examining the financing trends in
the RELIENACE INDUSTRIES Ltd for
the period of 2013- 14.
5. Study debt/equity ratio of
RELIENACE INDUSTRIES Ltd for 201314.
6. To measure Profitability of the
RELIENACE INDUSTRIES Ltd.

TORS AFFECTING THE CAPITAL STRUCTURE:


LEVERAGE: The use of fixed charges of funds such as
preference shares, debentures and term-loans along with equity
capital structure is described as financial leverage or trading on.
Equity. The term trading on equity is used because for raising
debt.
DEBT /EQUITY RATIO-Financial institutions while sanctioning
long-term loans insists that companies should generally have a
debt equity ratio of 2:1 for medium and large scale industries
and 3:1 indicates that for every unit of equity the company has,
it can raise 2 units of debt. The debt-equity ratio indicates the
relative proportions of capital contribution by creditors and
shareholders.
EBIT-EPS ANALYSIS-In our research for an appropriate capital
structure we need to understand how sensitive is EPS (earnings
per share) to change in EBIT (earnings before interest and
taxes) under different financing alternatives.
The other factors that should be considered whenever a capital
structure decision is taken are
Cost of capital
Cash flow projections of the company
Size of the company
Dilution of control
Floatation costs

COMPOSITION AND OBSERVATION


The sources tapped by RELIENCE Industries Ltd. Can be classified into:
Shareholders funds resources
Loan fund resources
SHAREHOLDER FUND RESOURCES:
Shareholders fund consists of equity capital and retained earnings.
EQUITY CAPITAL BUILD-UP
1.From 1995, the Authorized capital is Rs.5000 Crore of equity shares at
Rs.10 each. The issued
equity capital is RS. 3232 Crore at Rs.10 each for the period 2013-2014 and
subscribed and
paid-up capital is RS. 3232 Crore at Rs.10 each for the period 2013-2014.
3.There is no increase of in the equity from 2012-2013 to 2013-2014.
RETAINED EARNINGS COMPOSITION
This includes
Capital Reserve
Share Premium Account
General Reserve
Contingency Reserve
Debentures Redemption Reserve
Investment Allowance Reserve

COMPANY PROFILE

Reliance
At a Glance

Reliance Industries Limited (RIL) is Indias largest private sector company


with businesses across the energy and materials value chain and a strong
presence in the rapidly expanding retail and telecommunication sectors.
RIL is the first private sector company from India to feature in Fortune Global
500 list of Worlds Largest Corporations for the last ten consecutive years.
RIL ranked 107th in terms of revenues and 128th in terms of profits in 2013.
RIL's international debt is rated by Moodys at investment grade Baa2, with
positive outlook and by S&P at BBB+ with a negative outlook, which are
one notch and two notches above Indias sovereign rating, respectively.
Reliance is the only Asian company in the oil & gas sector to be rated two
notches above the sovereign by S&P. Reliance is now rated higher than some
of its global emerging market peers demonstrating its strength and
competitive position in the refining and petrochemicals sectors. The rating
also underpins Reliances position as a leading large-scale, integrated and
efficient oil refining and petrochemicals company.

Companys Vision, Mission and Value

Our Vision,
Through sustainable measures, create value for the nation, enhance
quality of life across the entire socio-economic spectrum and help
spearhead India as a global leader in the domains where we
operate.

Our Mission,
-Create value for all stakeholders .
-Grow through innovation.
-Lead in good governance practices.
-Use sustainability to drive product development and enhance
operational efficiencies.
-Ensure energy security of the nation
-Foster rural prosperity

Our Value
Our growth and success are based on the ten core values of Care,
Citizenship, Fairness, Honesty, Integrity, Purposefulness, Respect,
Responsibility, Safety and Trust

Major achievement for the year by the company


-RIL's Chairman and Managing Director, Shri Mukesh D. Ambani, received the 'NDTV 25
Greatest Living Legends of India' Award from the Honourable President of India, Shri Pranab
Mukherjee
-CSR
Oliver Kinross Asia Oil & Gas Award 2013 for Corporate Social Responsibility - Company of
the Year (RIL KG-D6)
-Best ART (Anti-Retroviral Therapy) Centre Award 2013 by Gujarat State AIDS Control
Society (GSACS) on World AIDS Day (Hazira Manufacturing Division)
-Quality
CII Six-Sigma National Award for 2013 in the Continuous and Bulk Organizations category
(Vadodara Manufacturing Division)
-Health, Safety and Environment
Golden Peacock National Award for Occupational Health & Safety 2012-13 in the
petrochemical sector (Nagothane Manufacturing Division)
International Safety Award 2014 with distinction for Health and Safety Management
System performance for 2013 (Jamnagar SEZ Refinery)
-Technology & Innovation
l 3rd National Award, 2013, for Technology Innovation in Petrochemical & Downstream
Plastic Processing Innovation award from Ministry of Chemicals & Fertilizers, Government of
India (Reliance Technology Group)
Retail
-Asian Human Capital Award 2013 - Special Commendation Prize for Work Smart - A Business
Excellence and Workforce Enablement Programme (Reliance Retail Academy)
Star Retailer Award 'Consumer Durables Retailer of the Year 2013' (Reliance Digital)
Sustainability
CII-ITC Sustainability Awards 2013 - Indias Most Sustainable Companies (Hazira
Manufacturing Division)
Golden Peacock Award for Sustainability 2013 (Nagothane Manufacturing Division)

FINANCIAL INFORMATION

EPS ANALYSIS

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0
1

Ratio analysis is a powerful tool of financial analysis. A ratio is defined as the indicated quotient of
two mathematical expressions and the relationship between two or more things. In financial
analysis, a ratio is used as a benchmark for evaluation the financial position and performance of a
firm. The absolute accounting figures reported in the financial statements do not provide a
meaningful understanding of the performance and financial position of a firm. An accounting figure
conveys meaning when it is related to some other relevant information. For example, an Rs.5 core
net profit may look impressive, but the firms performance can be said to be good or bad only when
the net profit figure is related to the firms Investment.
The relationship between two accounting figures expressed mathematically, is known as a
financial ratio (or simply as a ratio). Ratios help to summarize large quantities of financial data and
to make qualitative judgment about the firms financial performance. For example, consider
current ratio. It is calculated by dividing current assets by current liabilities; the ratio indicates a
relationship- a quantified relationship between current assets and current liabilities. This
relationship is an index or yardstick, which permits a quantitative judgment to be formed about the
firms liquidity and vice versa. The point to note is that a ratio reflecting a quantitative relationship
helps to form a qualitative judgment. Such is the nature of all financial ratios.
Standards of comparison:
The ration analysis involves comparison for a useful interpretation of the financial statements. A
single ratio in itself does not indicate favorable or unfavorable condition. It should be compared
with some standard. Standards of comparison may consist of:
Past ratios, i.e. ratios calculated form the past financial statements of the same firm;
Competitors ratios, i.e., of some selected firms, especially the most progressive and successful
competitor, at the same pint in time;
Industry ratios, i.e. ratios of the industry to which the firm belongs; and
Protected ratios, i.e., developed using the protected or pro-forma, financial statements of the
same firm.

1. There has been a remarkable increase Gross Sales and with the performance of All
the department and has narrowed and contributing to the EBIT. The Gross Profit Has
considerably increased 1600 Crore from in Last year. The interest payment has
increased by 170 Cr in the Current year and the Profit before Tax at 27,818 Crore
when compared to 26,284 Crore in Last year.
2. The profit After Tax has came 21,984 Crore to 21,003 Crore in Current year because
of demand in international market.
3. The PAT is in an increasing trend from 2008-2009 because of increase in sale prices
and also decreases in the cost of manufacturing. In 2010 and 2011even the cost of
manufacturing has increased by 5% because of higher sales volume PAT has increased
considerably, which leads to higher EPS, which is at 83.80 in 2010
4. The EBIT level in 2009 is at 33041 Crore and is increasing every year till 2010-11.
Because of government policy and low demand in market The EBIT levels in 2012 and
2013 decreased significantly but again started growing and reached to 27818 Crore.
5. The EPS of the company also increased considerably which investors in coming
period. The company has taken up a plant expansion program during the year to
increase the production activity and to meet the increase in the demand.
6. Because of decrease in Non-Operating expenses to the time of the Net profit has
increased. It stood at in current year increase because of redemption of debenture and
cost reduction. A dividend of Rs.3093 Crore as declared during the year at 9 % on
equity.

1) Sales in 2013-2014 is at 4, 01,200 Crore and in 2012-2013 3,


71,021 Crore those in a increase trend to the extent of 10% every
year. On the other hand manufacturing expenses are at 3, 29,313
from 2013-2014. There has been significant increase in cost of
production during 2012-2013 because of increase in Royalty.
2) The interest charges were 4053 Crore in 2014 and 3505 Crore in
2013 respectively shows that the company redeemed fixed interest
bearing funds from time to time out of profit from 20122013.Debantures were partly redeemed with the help of debenture
redemption reserve and other references.
3) The PAT (Profit After Tax) in 2013-2014 is at 21984 Crore. The PAT
has increased in prices in during the above period. The profit has
increased almost 15% during the period 2013-2014.
4) Debentures were redeemed by transfers to D.R.R. in 2012-2013.
5) A steady transfer for dividend during 2008-2009 from P&L
appropriation but in 2008 there is no adequate dividend equity
Shareholders.
6) The share capital of the company remained in unchanged during
the three-year period because of no public issues made by the
company.
7) The secured loans have decreased consistently from 2012-2013
and slight increase in 2013-14.

shareholders and giving a balanced report of results and progress and


responding to questions and issues raised in a timely and consistent manner.
The Company Secretary plays a key role in ensuring that the Board
procedures are followed and regularly reviewed. The Company Secretary
ensures that all relevant information, details and documents are made
available to the Directors and senior management for effective decisionmaking at the meetings.
Significant changes in accounting policies and internal controls
Takeover of a company or acquisition of a controlling or substantial stake in
another company
Statement of significant transactions, related party transactions and
arrangements entered by unlisted subsidiary companies
Issue of securities including debentures
Appointment of and fixing of remuneration of the Auditors as recommended
by the Audit Committee
Internal Audit findings and External Audit Reports (through the Audit
Committee)
Proposals for major investments, mergers, amalgamations and
reconstructions
Status of business risk exposures, its management and related action plans
Making of loans and investment of surplus funds
Borrowing of monies, giving guarantees or providing security in respect of
loans
Buyback of securities by the Company
Diversify the business of the Company

1. The company has to maintain the optimal


capital structure and leverage so that in coming
years it can contribute to the wealth of the
shareholders.
2. The mining loyalty contracts should be revised
so that it will decrease the direct in the
production
3. The company has to exercise control over its
outside purchases and overheads which have
effect on the profitability of the company.
4. As the interest rates in pubic Financial
institutions are in a decreasing trend after
globalization the company going on searching for
loan funds at a less rate of interest as in the case
of international fund.
5. Efficiency and competency in managing the